Hamacher v. Tumy

• Decision Date: 11 May 1960
• Citation: 222 Or. 341,352 P.2d 493
• Parties: John B. HAMACHER, dba Talent Sawmills, Appellant, v. Earl S. TUMY and Gilbert S. Tumy, dba Tumy Insurance Agency, Respondents.
• Court: Oregon Supreme Court

Page 493

352 P.2d 493

222 Or. 341

John B. HAMACHER, dba Talent Sawmills, Appellant, v. Earl S. TUMY and Gilbert S. Tumy, dba Tumy Insurance Agency Respondents.

Supreme Court of Oregon, Department 1.

Argued April 7, 1960.

Decided May 11, 1960.

Ervin B. Hogan and O. J. Frohnmayer, Medford, argued the cause for appellant. On the briefs were Neff, Frohnmayer & Lowry, Medford.

George M. Roberts, Medford, argued the cause for respondents. On the brief were Roberts, Kellington & Branchfield and Robert D. Heffernan, Jr., Medford.

Before ROSSMAN, J., Presiding, and O'CONNELL, GOODWIN and HARRIS, JJ.

O'CONNELL, Justice.

The plaintiff brings this action against Earl S. Tumy and Gilbert S. Tumy, copartners, engaged in a general insurance agency business, to recover damages resulting from the alleged failure of the defendants to procure insurance on certain buildings and equipment owned by plaintiff. Plaintiff appeals from a verdict and judgment for the defendants.

The plaintiff is the owner of a sawmill and planing mill in Jackson County, Oregon. The mill was originally owned by Talent Sawmills, Inc., a corporation. The corporation was dissolved in the summer of 1955 and all of the assets were distributed to plaintiff. At the time the mill was owned by the corporation the plant buildings and equipment were insured against fire for the aggregate amount of $170,000 through the issuance of several policies. This insurance was continued by endorsement after plaintiff became owner of the mill property. Each of the policies contained a co-insurance clause limiting the insurance carrier's liability to the proportion of any loss which the total amount of insurance bore to 90% of the actual cash value of the insured property at the time of loss.

During the latter half of 1955 plaintiff made substantial improvements and additions to the plant. In September, 1955, an appraisal was made of the plant buildings and equipment. That appraisal showed an insurable value of $226,290.16. Subsequent improvements were made which brought the value of the plant above the value shown by the appraisal.

On January 4, 1956, plaintiff and defendant Gilbert Tumy met in plaintiff' office to discuss the matter of securing additional insurance. They had before them the appraisal report made in September, 1955, showing a total insurable value of $226,290.16. Both parties knew that the appraisal did not cover improvements made by plaintiff after the appraisal had been made. Gilbert Tumy then suggested that additional insurance be procured. Plaintiff testified that Tumy suggested that the additional insurance be obtained to bring the total insurance to 95% of the insurable value shown on the appraisal, thus providing a safety factor of 5% over the 90% clause then in effect. Tumy testified that he suggested that the insurance be increased to 95% of the then insurable value, which value was not then known because the value of the improvements made subsequent to the appraisal was not known, and because the total given in the appraisal report included value which were not covered by the policies already issued to plaintiff. After Tumy had suggested the increase[222 Or. 346] to 95% plaintiff said 'he thought that was a good idea; he would do that.' Tumy claims that he then made arrangements with plaintiff to take the appraisal report back to Tumy's office 'for study to try to determine the insurable value of his property,' and to return the following morning for a continuation of their conference. The conference was not held and on the morning of January 6, 1956, plaintiff's property was damaged by fire to the extent of $174,166.58. The defendants had not procured additional insurance and plaintiff recovered only $139,396.29 under the policies which were in force at the time of the fire.

The principal assignment of error is directed at the following instruction to the jury:

'It is the law that an insurance agent or broker who, for a consideration, agrees to procure insurance for another, will be liable for any damage resulting from an unjustifiable breach of the agreement. It is further the law that a contract to procure insurance must be proved with the same certainty as an oral contract of insurance or agreement to insure, and that the essential elements of an agreement--of an oral contract of insurance or to insure are five in number: First, the subject matter to which the policy is to attach must exist; second, there must be a risk insured against; third, the amount of the indemnity must be definitely fixed; fourth, the duration of the risk must be known; and, fifth, the premium or consideration to be paid therefore must be agreed upon and paid or exist as a valid legal charge against the party to be insured. The absence of either or any of these requisites is fatal in cases where an oral contract of insurance is relied upon.'

Plaintiff contends that the instruction is erroneous in stating that a contract to procure insurance must be proved with the same certainty as a contract of insurance or an agreement to insure. A further and separate exception is taken to that part of the instruction which states in effect that plaintiff must prove the amount of the premium agreed to be paid.

The parties are in agreement upon the general proposition that an insurance broker who is employed as agent by the insured to procure insurance owes a duty to his principal to exercise reasonable skill and care to obtain the insurance coverage ordered by his principal. Rodgers Insurance Agency v. Andersen Machinery, 1957, 211 Or. 459, 316 P.2d 497; Lawrence v. Francis, 1954, 223 Ark. 584, 267 S.W.2d 306; Russell v. O'Connor, 1912, 120 Minn. 66, 139 N.W. 148; Marano v. Sabbio, 1953, 26 N.J.Super. 201, 97 A.2d 732. The parties are in disagreement, however, as to the character of the evidence which must be adduced by the plaintiff in order to establish the contract out of which the defendants' duty arises. The instruction states defendants' position, i. e., that the plaintiff must prove the essential elements of an oral contract for insurance in order to meet the requirement of proof for a contract to procure insurance. Plaintiff argues that something less than this is sufficient.

Very probably the instruction was fashioned out of the language in Rodgers Insurance Agency v. Andersen Machinery, supra. In that case it was said at page 469 of 211 Or., at page 501 of 316 P.2d that 'a contract to procure insurance should be proved with the same certainty as an oral contract of insurance or agreement to insure.' The court then went on to set out the 'essential elements' of a contract of insurance stated in Cleveland Oil & Paint Mfg. Co. v. Norwich Union Fire Ins. Society, 1898, 34 Or. 228, 233, 55 P. 435, and later in Cernio v. Oregon Physicians' Service 1954, 202 Or. 474, 276 P.2d 397. In the Rodgers case an insurance agency brought an action to recover certain insurance premiums alleged to be due from the defendants. The defendants counterclaimed alleging that the plaintiff breached an agreement to procure insurance for the plaintiff and that as a result of the failure to procure insurance defendants suffered a loss of certain equipment not covered by insurance. The equipment was lost in a flood. The insurance which plaintiff agreed to procure was for 'any contingency that might arise on the rental fees, fire, upset, theft, or mysterious disappearance.' As the court pointed out, the loss by flood was not within the list of risks which defendant claimed had been agreed upon. Moreover, the agreement left uncertain other elements of a valid contract. The court said at page 470 of 211 Or., at page 502 of 316 P.2d:

'No testimony was offered to prove either the amount of the indemnity, the duration of the risk or the premium to be paid for the policy. The evidence was even indefinite as to the property to be insured, although it might be inferred therefrom that the policy was to cover all machinery owned by the defendant and rented to others.'

The Rodgers case simply holds that the insurance agent is not liable for the failure to procure insurance unless the parties agree upon the type of insurance which is to be procured. The case may also be regarded as standing for the elementary legal proposition that a contract will not arise until there is sufficient certainty in the proof of its terms. This proposition would, of course, be equally applicable to contracts to procure insurance and contracts of insurance. The Rodgers case does not hold that the manner of proof is the same for both contracts to procure insurance and contracts of insurance. The court was not called upon to differentiate these two types of transactions.

Must the promisee of a contract to procure insurance prove all of the essentials of a contract of insurance with the same specificity that is required of a promisee asserting the existence of a contract of insurance? The instructions to the jury could be taken to mean that plaintiff was required to prove each of the enumerated elements of a contract of insurance by showing that the parties came to an agreement with respect to each of these separate elements.

We are of the opinion that the instruction so interpreted placed upon the plaintiff too heavy a burden of proof. Where a person seeks to enter into a contract of insurance with an insurance company or its agent it is understood that the negotiations will not ripen into a contract until the parties arrive at an agreement as to all of the elements which are essential to an insurance contract, including the subject matter to be covered, the risk insured against, the amount of the indemnity, the duration of the coverage and the premium. See Cleveland Oil & Paint Mfg. Co. v. Norwich Union Fire Ins. Society, supra. In entering into a contract to procure insurance, obviously the owner is seeking the same ultimate objective, that is, a contract of insurance, but the performance for which he bargains...